<PAGE>
------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
AFRICA INVESTMENT
FUND, INC.
------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER
AFRICA INVESTMENT FUND, INC.
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DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
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INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
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LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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- -------------------------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the year ended December 31, 1999, the Morgan Stanley Dean Witter Africa
Investment Fund, Inc. (the "Fund") had a total return, based on net asset value
per share, of 27.34%. For the period from the Fund's commencement of operations
on February 14, 1994 through December 31, 1999, the Fund's total return, based
on net asset value per share, was 66.65%. On December 31, 1999, the closing
price of the Fund's shares on the New York Stock Exchange was $10 3/8,
representing a 28.5% discount to the Fund's net asset value per share.
SOUTH AFRICA
The South African market performed strongly in 1999, with the Johannesburg
All-Share Index gaining 51.6%, buoyed by positive sentiment about emerging
markets, the recovery of commodity prices and sharp cuts in local interest
rates. The performance of the market was heavily skewed in favor of the
commodity-related stocks, which on average rose over 100%, while most other
sectors lagged. The Fund benefited from its heavy weight in this market, but was
hurt by insufficient exposure to commodity stocks.
The pace and degree of interest rate cuts surprised positively during 1999, with
the prime lending rate falling by 8%, reversing the moves made to shore up the
currency during the emerging markets crisis of 1998. The economy grew at about
1% in 1999, a much stronger showing than the contraction envisioned at the start
of the year. In 2000, we expect the improved interest rate scenario and
commodity price environment to lead to a robust 4% GDP boost. The critical
long-term issue will be, however, whether this faster pace of growth proves
sustainable or a one-time occurrence.
Inflation was largely under control, with the core figure coming in just under
8%, despite the large dislocation in the rand-to-U.S. dollar exchange rate in
late 1998. We expect this number to continue to fall, as the government
introduces inflation targeting, which will moderate demands for wage increases.
We believe this process will meet with gradual success over the next two to
three years, making South Africa a low-inflation and therefore, low-interest
rate country. This will translate into higher consistent GDP growth rates and an
expanding job market.
The country's export sector and current account received a boost from a
recovering commodity market, which still comprises about 70% of exports. Gold,
the most important of these, however, lagged the move. The country's foreign
reserves, while still inadequate, were bolstered by the dramatic reduction of
the Reserve Bank's net oversold forward position in the dollar from $24 billion
to $13 billion by year end. Over the longer term, the gradual relaxation of
exchange controls, which will prompt capital flight as well as the relocation of
corporate listings to Europe and the USA seeking lower cost of capital, will
have a negative effect on external balances, the exchange rate and the stock
market.
The government of President Mbeki, who won a landslide victory in elections in
June, initiated the process of downsizing the public sector and began addressing
the competitiveness of the labor force. The decision to impose a 6.3% wage
increase for the public sector in defiance of union demands marked a milestone
in the fight against inflationary wage settlements linked to the high
unemployment rate (30%, by some calculations). Privatization is still
progressing slowly, with the two largest remaining assets, the electric and
transport utilities, not slated for sale in the short term.
Overall, we are positive on the market for 2000, as a better economy feeds into
earnings results. Valuations are still quite reasonable, with the 12-month
forward price-to-earnings ratio at about 13.5 times and earnings per share
growth averaging 20% in real terms. Beyond next year, the opportunity lies in
swiftly breaking the inflationary and unemployment cycle caused by escalating
wage demands and transitioning into a higher growth path.
EGYPT
The Egyptian market rose 49.0%, as measured by the EFG Index for the year ended
December 31, 1999. Market action was dominated by the rise of Mobinil, the
cellular telephone provider, which contributed the lion's share of the market's
positive performance and trading liquidity. The Fund's performance was
positively influenced by its high weighting in Egypt and Mobinil.
The macroeconomic situation remains favorable with the important exception of
the currency situation. Inflation remains under control, hovering around 3.5%,
the fiscal deficit is in check and GDP growth is healthy. Foreign reserves,
however, were strained as the economy's break-neck pace of 5%-plus growth
continued sucking in imports in the face of a restricted supply of hard currency
resulting from declining tourism receipts and lower oil prices in 1998. The
Central Bank, despite its ample reserves, opted to restrict U.S. dollar
liquidity leading to uncertainty and the emergence of a black market. Later in
the year, local interest rates were led higher to slow the economy and support
the currency. The events of 1999 highlight the inadequacies of the fixed
exchange rate system, which has allowed the Egyptian pound to be pegged to the
U.S. dollar at a similar ratio for the past eight years. The level of current
reserves, together with the recovery in oil prices and tourism, will be enough
to soften the impact of
2
<PAGE>
the high demand for hard currency over the next few years. The cost of keeping
the peg, nonetheless, will be a slightly lower GDP growth rate, falling to a 3%
to 4% range.
On the political front, President Mubarak reshuffled his cabinet in September,
appointing market-oriented ministers to key posts and strengthening the mandate
to privatize. The year saw state sales of important cement assets and the
beginning of the process to list the electric and fixed line telecommunications
utilities.
The earnings growth story in the market is still intact, with consumer stocks
seeing growth of 30%, and the telecommunications industry doubling earnings, on
average, over the coming year. We remain excited about this market, despite the
currency worries, as valuations are still remarkably inexpensive
(price-to-earnings ratio through December 2000 of 9.0 times, excluding Mobinil)
and the market gains a wider acceptance among mainstream emerging market
investors.
ZIMBABWE
The best performing market in the continent for 1999, Zimbabwe, soared 121.7% as
measured by the Industrial Index. Small capitalization stocks led the way, but
the Fund still captured much of this move through its holdings. Strong corporate
earnings together with the prevalence of negative real interest rates enticed
local investors to increase their equity weightings, despite continued
government mismanagement of the economy and the country's resources. Inflation
reached 57% for the year and fiscal spending was difficult to account for, as
certain key items went off-balance sheet, such as the financing of the country's
involvement in the Congo war. The efforts of the IMF to stabilize the country
were sabotaged by lack of governmental commitment to the measures and targets
set by the program in late August. The currency remained pegged to the U.S.
dollar for the entire year, losing some of the competitive edge gained through
the devaluations of 1997 and 1998, and setting the stage for another adjustment
in 2000. A new tax on fixed income, to be implemented in 2000, will make it even
more compelling for local investors to favor equities over bonds, leading us to
conclude that the stock market should perform reasonably well in real and U.S.
dollar terms during the coming year. Ultimately, government will have to change
its ways, as the economic imbalances created over the last few years are
unsustainable and the population's patience begins to wane.
MAURITIUS
The Mauritian market performed poorly in 1999, with the SEMDEX Index falling
8.5%. The Fund's emphasis on this market due to its long-term potential was a
detriment to performance in 1999. The sugar industry had a traumatic year, with
yields dropping by 35% due to a prolonged drought, resulting in a reduction of
GDP growth to 3% from 5.5% and depressing market sentiment. The other pillars of
the economy, however, did not lose momentum, with tourism, financial services
and the EPZ (Export Processing Zone) posting growth rates in excess of 5%.
Interest rates, which were raised during the 1998 emerging market crisis, were
slow to come down, as the Central Bank was keen to temper a pick-up in
inflation that reached 7.6% during the year. Inflationary trends have been
receding, however, and we expect significant interest rate cuts in 2000,
improving conditions for economic activity and allowing for the depreciation of
the currency, whose strength was beginning to affect exporters. Mauritius
remains one of the best-managed economies in Africa, and it is quickly
developing into a regional center for industry and services. We are optimistic
about the prospects in 2000, with a better interest rate environment, the
partial recovery of the sugar industry and extremely compelling valuations (the
12-month forward price-to-earnings ratio is 8.0 times). Our focus remains on
the hotel and banking sectors, which offer exposure to industries with secular
growth stories, excellent management and that command surprisingly undemanding
multiples.
GHANA
Ghana was a disappointing market during 1999, with the Databank Index losing
43.3% of its value, largely due to the depreciation of the Cedi, the local
currency. This market was the largest detractor of performance for the Fund
during 1999, due to its significant weighting. Prices for the country's main
exports, cocoa and gold, fell sharply throughout the year, creating a shortage
of foreign exchange. Interest rates, which had fallen dramatically since 1997,
climbed 9% to reach 34%. The country's successful record in bringing down
inflation was not broken, however, with the year-end figure coming in at 12.5%.
The inflationary prospects for 2000 are a bit more precarious, as the effects of
a weaker currency and spending related to presidential elections find their way
into prices. We are confident that in the long run the country will remain on
track with its IMF-inspired program to combat fiscal spending and inflation and
encourage privatization. At a price-to-earnings ratio of 4.0 times through
December of 2000 with earnings growth of 10% in real terms, the market still is
the best value in the continent and we remain positive.
REST OF AFRICA
Approximately 11% of the Fund is invested in countries other than those
discussed above. Botswana, which represents 4.5% of the Fund, had a strong year,
with the Domestic Companies Index rising 42.1%. The market was
3
<PAGE>
pushed up by banking stocks, which had good operating performance but are
extremely illiquid. The Fund's holdings in the brewery sector languished as
foreign investors sold their positions and focused their attention away from
smaller markets. We are optimistic about our holdings in Botswana, given an
earnings growth rate of 25% in real terms and a price-to-earnings ratio to
December of 2000 of 7.5 times.
Kenya had a frustrating year, losing 34.9% of its value, primarily as a result
of currency weakness. Economic growth was uninspiring at around 1.4% for 1999
and corporate earnings disappointed. Local interest rates retraced their early
gains and finished the year close to 20%, despite inflation falling to 2.5%.
Recent moves to restore some credibility to the administration of Daniel arap
Moi has lured the IMF back into talks, yet we are not constructive on the
potential outcome.
The Fund continued to have no weight in Morocco, one of the continent's largest
markets, as the relationship between valuations and earnings growth is not
enticing. After the USI Index's 12.9% fall in 1999, however, we feel there may
be selective opportunities to exploit in the coming year.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
January 2000
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
- --------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
www.msdw.com/institutional/investmentmanagement.
4
<PAGE>
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
Investment Summary as of December 31, 1999 (Unaudited)
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<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2)
---------------------- --------------------
ANNUAL ANNUAL
CUMULATIVE AVERAGE CUMULATIVE AVERAGE
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
One Year 27.09% 27.09% 27.34% 27.34%
Five Year 43.34 7.47 58.03 9.58
Since Inception* 21.31 3.34 66.65 9.08
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994* 1995 1996 1997 1998 1999
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share ............ $14.43 $17.05 $16.86 $14.45 $11.69 $14.51
Market Value Per Share ............... $11.38 $12.88 $13.63 $11.50 $ 8.38 $10.38
Premium/(Discount) ................... -21.1% -24.5% -19.2% -20.4% -28.3% -28.5%
Income Dividends ..................... $ 0.54 $ 0.96 $ 0.14 $ 0.30 $ 0.86 $ 0.30
Capital Gains Distributions .......... -- $ 0.01 $ 1.23 $ 2.25 $ 0.00# --
Fund Total Return (2) ................ 7.34% 26.14% 8.64% 2.69% 11.82% 27.34%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
* The Fund commenced operations on February 14, 1994.
# Amount is less than U.S.$0.01 per share.
5
<PAGE>
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
Portfolio Summary as of December 31, 1999
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- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (97.6%)
Short-Term Investments (2.4%)
</TABLE>
- -------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Banking (17.7%)
Beverages & Tobacco (17.7%)
Broadcasting & Publishing (2.8%)
Business & Public Services (3.3%)
Financial Services (5.8%)
Merchandising (4.0%)
Metals - Non Ferrous (3.0%)
Misc. Materials & Commodities (10.5%)
Multi-Industry (4.4%)
Other (20.2%)
Telecommunications - Wireless (10.6%)
</TABLE>
- -------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<S> <C>
Botswana (4.5%)
Egypt (21.3%)
Ghana (7.4%)
Ivory Coast (1.4%)
Kenya (1.7%)
Mauritius (9.7%)
Namibia (1.2%)
Other (3.0%)
South Africa (40.9%)
Tunisia (0.8%)
Zimbabwe (8.1%)
</TABLE>
- -------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Egyptian Company for Mobile Services (Egypt) 10.6%
2. State Bank of Mauritius (Mauritius) 5.9
3. Sechaba Breweries Ltd. (Botswana) 4.5
4. Billiton plc (South Africa) 4.3
5. Al-Ahram Beverages Co. GDR (Egypt) 4.1
6. Rembrandt Group Ltd. (South Africa) 2.7
7. Standard Chartered Bank of Ghana (Ghana) 2.5
8. B.O.E. Corp. Ltd. (South Africa) 2.5
9. Bidvest Group Ltd. (South Africa) 2.5
10. Johnnies Industrial Corp., Ltd. (South Africa) 2.4
----
42.0%
----
----
</TABLE>
* Excludes short-term investments.
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.3%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
BOTSWANA (4.5%)
BEVERAGES & TOBACCO
Sechaba Breweries Ltd. 7,877,940 U.S.$ 9,010
--------------
- --------------------------------------------------------------------------------
EGYPT (21.3%)
BANKING
Commercial International Bank 230,694 3,370
Commercial International Bank GDR 60,000 859
National Societe Generale Bank 45,298 636
--------------
4,865
--------------
BEVERAGES & TOBACCO
(a)Al-Ahram Beverages Co. GDR 422,000 8,313
Eastern Tobacco 104,802 2,751
--------------
11,064
--------------
BUILDING MATERIALS & COMPONENTS
Ameriyah Cement Co. 39,787 593
Suez Cement Co. 23,664 395
(a)Suez Cement Co. GDR 108,760 1,797
--------------
2,785
--------------
FOOD & HOUSEHOLD PRODUCTS
Central Flour Mills 110 --@
North Cairo Flour Mills 605 7
--------------
7
--------------
TELECOMMUNICATIONS
Egyptian Electro Cables 1,848 12
--------------
TELECOMMUNICATIONS -- WIRELESS
(a)Egyptian Company for Mobile Services 466,508 21,377
--------------
UTILITIES -- ELECTRICAL & GAS
Egypt Gas Co. 45,000 2,758
--------------
42,868
--------------
- --------------------------------------------------------------------------------
GHANA (7.4%)
BANKING
Ghana Commercial Bank 5,394,580 1,187
Social Security Bank Ltd. 6,938,100 3,987
Standard Chartered Bank of Ghana 913,400 5,027
--------------
10,201
--------------
BEVERAGES & TOBACCO
(a)Ghana Breweries Ltd. 504,001 212
Guinness Ghana Ltd. 3,050,979 839
British American Tobacco Co., Bhd. 6,749,660 917
--------------
1,968
--------------
FINANCIAL SERVICES
(a)Home Finance Co. 2,814,840 612
--------------
METALS -- NON FERROUS
Ghana Pioneer Aluminum Factory 1,043,400 91
--------------
METALS -- STEEL
(a)Aluworks Ghana Ltd. 1,070,000 U.S.$ 771
--------------
RECREATION, OTHER CONSUMER GOODS
Unilever Ghana Ltd. 2,494,900 1,337
--------------
14,980
--------------
- --------------------------------------------------------------------------------
IVORY COAST (1.4%)
FOOD & HOUSEHOLD PRODUCTS
(a)Nestle Cote D Ivoire 12,500 1,574
--------------
FINANCIAL SERVICES
Filature Tissages Sacs 25,000 730
--------------
DIVERSIFIED OPERATION
(a)SOC Ivoirienne de Coco Rappe 24,000 405
--------------
2,709
--------------
- --------------------------------------------------------------------------------
KENYA (1.7%)
BANKING
Kenya Commercial Bank Ltd. 991,326 429
--------------
CONSTRUCTION & HOUSING
(a)Athi River Mining Ltd. 3,262,500 258
--------------
FINANCIAL SERVICES
National Industrial Credit Bank 389,438 144
--------------
FOOD & HOUSEHOLD PRODUCTS
Uchumi Supermarket Ltd. 2,501,107 1,374
--------------
MISC. MATERIALS & COMMODITIES
Firestone East Africa Ltd. 4,756,950 1,045
--------------
UTILITIES -- ELECTRICAL & GAS
Kenya Power & Lighting Co., Ltd. 150,000 197
--------------
3,447
--------------
- --------------------------------------------------------------------------------
MALAWI (0.5%)
FOOD & HOUSEHOLD PRODUCTS
Sugar Corporation of Malawi 7,160,000 956
--------------
- --------------------------------------------------------------------------------
MAURITIUS (9.7%)
BANKING
Mauritius Commercial Bank 782,036 2,892
(a)State Bank of Mauritius Ltd. 17,702,232 11,841
--------------
14,733
--------------
LEISURE & TOURISM
New Mauritius Hotels 1,753,850 3,485
--------------
MULTI-INDUSTRY
Rogers and Co., Ltd. 408,031 1,333
--------------
19,551
--------------
- --------------------------------------------------------------------------------
MOZAMBIQUE (0.1%)
MISC. MATERIALS & COMMODITIES
(a)Kenmare Resources plc 1,890,000 248
--------------
- --------------------------------------------------------------------------------
NAMIBIA (1.2%)
MISC. MATERIALS & COMMODITIES
Namibian Minerals Corp. 400,000 2,450
--------------
- --------------------------------------------------------------------------------
NIGERIA (0.2%)
ENERGY SOURCES
(a)Tuskar Resources plc 14,329,000 463
--------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA (40.9%)
BANKING
ABSA Group Ltd. 482,829 U.S.$ 2,167
Nedcor Ltd. 96,190 2,143
--------------
4,310
--------------
BEVERAGES & TOBACCO
Amalgamated Beverage
Industries Ltd. 377,437 3,222
Rembrandt Group Ltd. 563,090 5,365
--------------
8,587
--------------
BROADCASTING & PUBLISHING
Nasionale Pers Beperk 'N' 281,700 2,679
Primedia Ltd. N Shares 1,547,900 1,913
--------------
4,592
--------------
BUSINESS & PUBLIC SERVICES
Johnnies Industrial Corp., Ltd. 410,800 4,809
The Educor Investment Corp., Ltd. 2,311,680 1,940
--------------
6,749
--------------
CHEMICALS
SASOL Ltd. 506,600 4,160
--------------
CONSTRUCTION & HOUSING
Concor Ltd. 909,822 1,405
--------------
DATA PROCESSING & REPRODUCTION
(a)Ixchange Technology Holdings 308,000 1,302
(a)M-Web Holdings Limited 293,000 184
--------------
1,486
--------------
ELECTRICAL & ELECTRONICS
Dimensions Data Holdings Ltd. 472,821 2,968
--------------
FINANCIAL SERVICES
B.O.E. Corp. Ltd. 'N' 6,607,268 5,017
(a)New Africa Investments Ltd.
(Preferred) 'N' 6,881,400 3,827
--------------
8,844
--------------
FOREST PRODUCTS & PAPER
Sappi Ltd. 372,000 3,678
--------------
INSURANCE
Sanlam Ltd. 1,376,200 1,924
--------------
MACHINERY & ENGINEERING
Howden Africa Holdings Ltd. 2,010,172 343
--------------
MERCHANDISING
Ellerine Holdings Ltd. 618,700 3,270
--------------
METALS -- NON FERROUS
Anglo American Platinum Corp., Ltd. 65,200 1,982
Impala Platinum Holdings Ltd. 99,600 4,033
--------------
6,015
--------------
MISC. MATERIALS & COMMODITIES
Billiton plc 1,499,700 8,620
(a)De Beers 160,030 4,658
De Beers ADR 101,000 2,923
--------------
16,201
--------------
MULTI-INDUSTRY
Bidvest Group Ltd. 511,702 U.S.$ 5,000
--------------
TELECOMMUNICATIONS
M-Cell Ltd. 725,000 2,806
--------------
82,338
--------------
- --------------------------------------------------------------------------------
TUNISIA (0.8%)
BANKING
Banque de l'Habitat 93,750 1,144
--------------
FINANCIAL SERVICES
Tunisie Leasing SA 15,000 499
--------------
1,643
--------------
- --------------------------------------------------------------------------------
UNITED KINGDOM (0.5%)
MULTI-INDUSTRY
(a)African Lakes Corp. 661,742 1,069
--------------
- --------------------------------------------------------------------------------
UNITED STATES (0.5%)
BROADCASTING & PUBLISHING
MIH Ltd. 17,500 1,032
--------------
- ------------------------------------------------------------------------------
ZAMBIA (0.5%)
FOOD & HOUSEHOLD PRODUCTS
Zambia Sugar Co., Ltd. 151,371,609 540
--------------
METALS -- STEEL
(a)Zambia Consolidated Copper
Mines Ltd. 586,700 513
--------------
1,053
--------------
- --------------------------------------------------------------------------------
ZIMBABWE (8.1%)
BEVERAGES & TOBACCO
Delta Corp., Ltd. 11,965,293 4,257
T.S.L., Ltd. 3,477,000 733
--------------
4,990
--------------
DATA PROCESSING & REPRODUCTION
(a)Econet Wireless Holdings 6,805,000 1,165
--------------
ENERGY SOURCES
Wankie Colliery Co., Ltd. 7,871,900 643
--------------
FINANCIAL SERVICES
(a)NMBZ Holdings Ltd. 1,368,000 787
--------------
FOOD & HOUSEHOLD PRODUCTS
Interfresh Ltd. 15,000,000 494
--------------
LEISURE & TOURISM
Zimbabwe Sun Ltd. 10,053,378 715
--------------
MERCHANDISING
Meikles Africa Ltd. 4,799,880 4,743
--------------
MISC. MATERIALS & COMMODITIES
Bindura Nickel Corp., Ltd. 3,389,956 1,251
--------------
MULTI-INDUSTRY
(a)TA Holdings Ltd. 11,432,100 633
(a)Trans Zambezi Industries Ltd. 6,012,410 581
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
ZIMBABWE (CONTINUED)
MULTI-INDUSTRY (CONTINUED)
(a,b)Trans Zambezi Industries Ltd. 2,560,000 U.S.$ 247
ADR
---------------
1,461
---------------
16,249
---------------
- -------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost U.S.$193,644) 200,066
---------------
- --------------------------------------------------------------------------------
NO. OF
WARRANTS
- --------------------------------------------------------------------------------
WARRANTS (0.0%)
- --------------------------------------------------------------------------------
SOUTH AFRICA (0.0%)
INDUSTRIAL COMPONENTS
(a)First South Africa Corp., 5 --@
expiring 1/24/01
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost U.S.$--@) --@
---------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.6%)
- --------------------------------------------------------------------------------
UNITED STATES (0.6%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 2.60%,
dated 12/31/99, due 1/3/00, to
be repurchased at U.S.$1,276,
collateralized by U.S.$1,305
United States Treasury Notes,
6.125%, due 12/31/01, valued at
U.S$1,302
(Cost U.S.$1,276) U.S.$ 1,276 1,276
---------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.8%)
Ghana Cedi GHC 127,569 37
South African Rand ZAR 21,011 3,417
Zimbabwe Dollar ZWD 4,002 105
--------------
(Cost U.S.$3,558) 3,559
--------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.7%)
(Cost U.S.$198,478) 204,901
--------------
- --------------------------------------------------------------------------------
OTHER ASSETS (0.3%)
Dividends Receivable U.S.$ 305
Receivable for Investments Sold 221
Foreign Withholding Tax Reclaim 10
Receivable
Other Assets 16 U.S.$ 552
------------- ---------------
- --------------------------------------------------------------------------------
LIABILITIES (-2.0%)
Payable For:
Dividends Declared (3,412)
Investment Advisory Fees (185)
Custodian Fees (136)
Professional Fees (63)
Directors' Fees and Expenses (53)
Shareholder Reporting Expenses (53)
Administrative Fees (20)
Bank Overdraft (1)
Other Liabilities (1) (3,924)
------------- ---------------
- -------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 13,891,121 issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 201,529
---------------
- -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 14.51
---------------
- -------------------------------------------------------------------------------
AT DECEMBER 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------
Common Stock U.S.$ 139
Capital Surplus 200,598
Distributions in Excess of Net
Investment Income (236)
Accumulated Net Realized Loss (5,378)
Unrealized Appreciation on Investments and
Foreign Currency Translations 6,406
- -------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 201,529
--------------
- ------------------------------------------------------------------------------
</TABLE>
(a) - Non-income producing
(b) - 144A Security -- certain conditions for public sale may exist.
@ - Value is less than U.S.$500.
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DECEMBER 31, 1999 EXCHANGE RATES:
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
GHC Ghana Cedi 3,452.500 = U.S. $ 1.00
ZAR South African Rand 6.150 = U.S. $ 1.00
ZWD Zimbabwe Dollar 37.948 = U.S. $ 1.00
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Banking U.S.$ 35,682 17.7%
Beverages & Tobacco 35,619 17.7
Broadcasting & Publishing 5,624 2.8
Building Materials & Components 2,785 1.4
Business & Public Services 6,749 3.3
Chemicals 4,160 2.1
Construction & Housing 1,663 0.8
Data Processing & Reproduction 2,651 1.3
Diversified Operation 405 0.2
Electrical & Electronics 2,968 1.5
Energy Sources 1,106 0.5
Financial Services 11,616 5.8
Forest Products & Paper 3,678 1.8
Food & Household Products 4,945 2.4
Insurance 1,924 1.0
Leisure & Tourism 4,200 2.1
Machinery & Engineering 343 0.2
Merchandising 8,013 4.0
Metals--Non-Ferrous 6,106 3.0
Metals--Steel 1,284 0.6
Misc. Materials & Commodities 21,195 10.5
Multi-Industry 8,863 4.4
Recreation, Other Consumer Goods 1,337 0.7
Telecommunications 2,818 1.4
Telecommunications--Wireless 21,377 10.6
Utilities--Electrical & Gas 2,955 1.5
Other 4,835 2.4
--------------- -------
U.S.$ 204,901 101.7%
--------------- -------
--------------- -------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- ---------------------------------------------------------------------
<S> <C> <C>
Botswana U.S.$ 9,010 4.5%
Egypt 42,868 21.3
Ghana 14,980 7.4
Ivory Coast 2,709 1.4
Kenya 3,447 1.7
Malawi 956 0.5
Mauritius 19,551 9.7
Mozambique 248 0.1
Namibia 2,450 1.2
Nigeria 463 0.2
South Africa 82,338 40.9
Tunisia 1,643 0.8
United Kingdom 1,069 0.5
United States (including 2,308 1.1
short-term investments)
Zambia 1,053 0.5
Zimbabwe 16,249 8.1
Other 3,559 1.8
--------------- -----
U.S.$ 204,901 101.7%
--------------- -----
--------------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF OPERATIONS (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends ................................................................................................. U.S.$ 8,483
Interest .................................................................................................. 13
Less: Foreign Taxes Withheld .............................................................................. (538)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income ........................................................................................... 7,958
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees .................................................................................. 2,112
Custodian Fees ............................................................................................ 547
Administrative Fees ....................................................................................... 216
Shareholder Reporting Expenses ............................................................................ 88
Professional Fees ......................................................................................... 64
Directors' Fees and Expenses .............................................................................. 49
Transfer Agent Fees ....................................................................................... 18
Other Expenses ............................................................................................ 70
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses ......................................................................................... 3,164
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................................................................................ 4,794
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ................................................................................ 1,297
Foreign Currency Transactions ............................................................................. (930)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain ...................................................................................... 367
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments ............................................................................... 37,481
Depreciation on Foreign Currency Translations ............................................................. (369)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ......................................................... 37,112
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation ................................... 37,479
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... U.S.$ 42,273
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income .................................................................. U.S.$ 4,794 U.S.$ 5,826
Net Realized Gain ...................................................................... 367 2,953
Change in Unrealized Appreciation/Depreciation ......................................... 37,112 (39,777)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ........................ 42,273 (30,998)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income .................................................................. (3,878) (12,452)
Distributions in Excess of Net Investment Income ....................................... (236) --
In Excess of Net Realized Gains ........................................................ -- (37)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions .................................................................... (4,114) (12,489)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (455,300 shares and 1,102,056 shares, respectively) ............... (4,353) (11,993)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Capital Share Transactions ................... (4,353) (11,993)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) .............................................................. 33,806 (55,480)
Net Assets:
Beginning of Period .................................................................... 167,723 223,203
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period (including distributions in excess of net investment
income/undistributed net investment income of U.S.$(236) and U.S.$14,
respectively) ........................................................................ U.S.$ 201,529 U.S.$167,723
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA AND ------------------------------------------------------------------------------------
RATIOS: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... U.S.$ 11.69 U.S.$ 14.45 U.S.$ 16.86 U.S.$ 17.05 U.S.$ 14.43
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................ 0.34 0.40 0.34 0.35 0.64
Net Realized and Unrealized Gain (Loss)
on Investments................................. 2.68 (2.58) (0.20) 0.83 2.95
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............... 3.02 (2.18) 0.14 1.18 3.59
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................ (0.28) (0.86) (0.30) (0.14) (0.96)
In Excess of Net Investment Income............... (0.02) -- -- -- (0.00)#
Net Realized Gains............................... -- -- (2.04) (1.23) (0.01)
In Excess of Net Realized Gains.................. -- (0.00)# (0.21) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.30) (0.86) (2.55) (1.37) (0.97)
- -----------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Shares Repurchased......... 0.10 0.28 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..................... U.S.$ 14.51 U.S.$ 11.69 U.S.$ 14.45 U.S.$ 16.86 U.S.$ 17.05
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD.............. U.S.$ 10.38 U.S.$ 8.38 U.S.$ 11.50 U.S.$ 13.63 U.S.$ 12.88
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value..................................... 27.09% (20.62%) 1.13% 16.26% 20.84%
Net Asset Value (1).............................. 27.34% (11.82%) 2.69% 8.64% 26.14%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS).............. U.S.$201,529 U.S.$167,723 U.S.$223,203 U.S.$260,522 U.S.$236,428
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets............ 1.78% 1.79% 1.77% 1.79% 1.77%
Ratio of Net Investment Income to Average Net Assets 2.70% 2.56% 1.72% 2.11% 4.18%
Portfolio Turnover Rate............................ 135% 53% 40% 68% 66%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Amount is less than U.S. $0.01 per share
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The Morgan Stanley Dean Witter Africa Investment Fund, Inc. (formerly The
Morgan Stanley Africa Investment Fund, Inc.) (the "Fund") was incorporated in
Maryland on December 14, 1993, and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund's investment objective is long-term capital
appreciation through investments primarily in equity securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of current bid and
asked prices obtained from reputable brokers. Short-term securities which
mature in 60 days or less are valued at amortized cost. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale)
are valued at fair value as determined in good faith under procedures
approved by the Board of Directors, although the actual calculations may be
done by others. Due to certain African securities markets' small size,
degree of liquidity and volatility, the price which the Fund may realize
upon sale of securities may not be equal to the value presented in the
financial statements.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly,
no provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
The Fund accrues such taxes when the related income is earned.
3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities
(collateral). In connection with transactions in repurchase agreements, a
bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities - at the prevailing rate of
exchange on valuation date;
- investment transactions and investment income - at the prevailing
rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effects of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) due to security transactions are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward
foreign currency exchange contracts, disposition of foreign currency,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books, if any, and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are
reflected as a component of
13
<PAGE>
unrealized appreciation (depreciation) on investments and foreign currency
translations in the Statement of Net Assets. The change in net unrealized
currency gains (losses) on foreign currency translations for the period is
reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of foreign currency relative to the
U.S. dollar.
6. DEBT INSTRUMENTS: The Fund may invest in debt instruments including those
in the form of fixed and floating rate loans ("Loans") arranged through
private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders") deemed to be creditworthy by
the investment adviser. The Fund's investments in Loans may be in the form
of participations in Loans ("Participations") or assignments
("Assignments") of all or a portion of Loans from third parties. The Fund's
investment in Participations typically results in the Fund having a
contractual relationship with only the Lender and not with the borrower.
The Fund has the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. The
Fund generally has no right to enforce compliance by the borrower with the
terms of the loan agreement. As a result, the Fund may be subject to the
credit risk of both the borrower and the Lender that is selling the
Participation. When the Fund purchases Assignments from Lenders it acquires
direct rights against the borrower on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender.
7. WRITTEN OPTIONS: The Fund may write covered call options in an attempt to
increase the Fund's total return. The Fund will receive premiums that are
recorded as liabilities and subsequently adjusted to the current value of
the options written. Premiums received from writing options which expire
are treated as realized gains. Premiums received from writing options which
are exercised or are closed are offset against the proceeds or amount paid
on the transaction to determine the net realized gain or loss. By writing a
covered call option, the Fund foregoes in exchange for the premium the
opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase.
8. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities
purchased on a when-issued or delayed delivery basis are purchased for
delivery beyond the normal settlement date at a stated price and yield, and
no income accrues to the Fund on such securities prior to delivery. When
the Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities assets
as segregated on the Fund's records. Purchasing securities on a forward
commitment or when-issued or delayed-delivery basis may involve a risk
that the market price at the time of delivery may be lower than the agreed
upon purchase price, in
14
<PAGE>
which case there could be an unrealized loss at the time of delivery.
9. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
10. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the Structured Security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in Structured Securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of
the original investment.
11. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that
may be purchased or sold by the Fund are expected to regularly consist of
instruments not traded on an exchange. The risk of nonperformance by the
obligor on such an instrument may be greater, and the ease with which the
Fund can dispose of or enter into closing transactions with respect to such
an instrument may be less, than in the case of an exchange-traded
instrument. In addition, significant disparities may exist between bid and
asked prices for derivative instruments that are not traded on an exchange.
Derivative instruments not traded on exchanges are also not subject to the
same type of government regulation as exchange traded instruments, and many
of the protections afforded to participants in a regulated environment may
not be available in connection with such transactions.
The Fund did not write options nor did the Fund invest in Debt Instruments,
Forward Commitments and When Issued/Delayed Delivery Securities, Swap
Agreements, Structured Securities or participate in Over-the-Counter Trading
during the year ended December 31, 1999.
12. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date net of applicable withholding taxes where recovery of
such taxes is not reasonably assured. Distributions to shareholders are
recorded on the ex-dividend date.
The amount and character of income and capital gain distributions to be
paid by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
15
<PAGE>
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid in capital.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Dean Witter Investment Management Inc. (the "Adviser"),
provides investment advisory services to the Fund under the terms of an
Investment Advisory and Management Agreement (the "Agreement"). Under the
Agreement, the Adviser is paid a fee computed weekly and payable monthly at
an annual rate of 1.20% of the Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its corporate affiliate Chase Global Funds
Services Company (the "Administrator"), provides administrative services to the
Fund under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of 0.06% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain out-of-pocket expenses by the
Administrator.
D. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees are
payable monthly based on assets held in custody, investment purchase and sales
activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. For the year ended December 31, 1999, the Fund made purchases and sales
totaling approximately $236,527,000 and $240,261,000 respectively, of investment
securities other than long-term U.S. Government securities and short-term
investments. There were no purchases or sales of long-term U.S. Government
securities. At December 31, 1999, the U.S. Federal income tax cost basis of
securities was $195,846,000 and, accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $5,496,000 of which $38,995,000 related to
appreciated securities and $33,499,000 related to depreciated securities. At
December 31, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $3,166,000 available to offset future
capital gains which will expire on December 31, 2006. During the year ended
December 31, 1999, the Fund utilized capital loss carryforwards, for U.S.
Federal income tax purposes, of approximately $380,000. To the extent that
capital gains are offset, such gains will not be distributed to the
shareholders. For the year ended December 31, 1999, the Fund intends to elect to
defer to January 1, 2000, for U.S. Federal income tax purposes, post-October
currency losses of $209,000 and post-October capital losses of $1,286,000.
F. During 1999, the Fund incurred brokerage commissions of $187,000 with Morgan
Stanley & Co. Incorporated, an affiliate of the Adviser, for the year ended
December 31, 1999.
G. A significant portion of the Fund's net assets consists of securities of
issuers located in Africa. These securities are denominated in foreign
currencies and involve certain considerations and risks not typically associated
with investments in the United States. Securities of these issuers are often
subject to greater price volatility, limited capitalization and liquidity, and
higher rates of inflation than securities of companies based in the United
States. In addition, the securities markets in these countries are less
developed than the U.S. securities market and there is often substantially less
publicly available information about African issuers than U.S. issuers.
Settlement mechanisms are also less developed and consist primarily of physical
delivery, which may cause the Fund to experience delays or other difficulties in
effecting transactions in certain African nations.
These securities may also be subject to substantial governmental involvement in
the economy and greater social, economic, and political uncertainty which could
adversely affect the liquidity or value, or both, of the Fund's investment. In
addition, the Fund's ability to hedge its currency risk is limited, possibly
exposing the Fund to currency devaluation and other exchange rate fluctuations.
Accordingly, the price which the Fund may realize upon sale of such securities
may not be equal to its value as presented in the financial statements.
H. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. At December 31, 1999, the deferred fees payable, under the Plan, totaled
$53,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During December 1999, the Board of Directors declared a distribution of $0.25
per share, derived from net investment income, payable on January 14, 2000, to
shareholders of record on December 21, 1999.
16
<PAGE>
J. On July 2, 1998, the Fund commenced a share repurchase program for purposes
of enhancing shareholder value and reducing the discount at which the Fund's
shares traded from their net asset value. For the year ended December 31, 1999,
the Fund repurchased 455,300 shares or 3.17% of its Common Stock at an average
price per share of $9.51, including $21,000 in commissions paid, and an average
discount of 23.59% from net asset value per share. For the year ended December
31, 1998, the Fund repurchased 1,102,056 shares or 7.13% of its Common Stock at
an average price per share of $10.83, including $53,000 in commissions paid, and
an average discount of 25.62% from net asset value per share. The Fund expects
to continue to repurchase its outstanding shares at such time and in such
amounts as it believes will further the accomplishment of the foregoing
objectives, subject to review by the Board.
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FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1999, the Fund expects to pass through to
shareholders foreign tax credits totaling approximately $538,000. In addition,
for the year ended December 31, 1999, gross income derived from sources within a
foreign country totaled $8,482,000.
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
(formerly, Morgan Stanley Africa Investment Fund, Inc.)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Dean Witter Africa Investment Fund, Inc. (the "Fund") at December
31, 1999, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 18, 2000
18
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date. If the market price per share equals or exceeds net asset
value per share on the reinvestment date, the Fund will issue shares to
participants at net asset value. If net asset value is less than 95% of the
market price on the reinvestment date, shares will be issued at 95% of the
market price. If net asset value exceeds the market price on the reinvestment
date, participants will receive shares valued at market price. The Fund may
purchase shares of its Common Stock in the open market in connection with
dividend reinvestment requirements at the discretion of the Board of Directors.
Should the Fund declare a dividend or capital gain distribution payable only in
cash, the Plan Agent will purchase Fund shares for participants in the open
market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends and distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. The provisions of the
Plan have been modified to conform to the above description regarding the option
of Participants to make additional voluntary cash payments to the Plan on an
annual, rather than monthly, basis. Requests for additional information or any
correspondence concerning the Plan should be directed to the Plan Agent at:
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
19
